Most people know that they should be doing something about their finances, but they just don't know where to start. This series of posts will teach you the basics of personal finance- from budgeting and saving to investing and debt reduction. It can seem overwhelming at first, but with a little bit of effort, you can get your finances in order and start improving your financial situation today!
The majority of people are aware that it is critical to manage their finances well, but they may not know why. Here are a few reasons why it's essential to have a solid grip on your personal finances:
Financial stability is key to a happy and successful life.
If you're constantly struggling to make ends meet, you'll be under a lot of stress, and you'll never be able to achieve your goals. But if you have a good handle on your finances, you'll be able to focus on what's essential, and you'll be less likely to fall into debt.
Financial stability gives you freedom.
When you're financially stable, you have more freedom to do what you want with your life. You won't be tied down to a job you hate because you can afford to quit and look for something better.
Financial stability is key to long-term security.
Which would you rather have? A million-dollar business or a lifetime of memories with your loved ones? When you have the financial means to support yourself, it gives you a safety net so that you can focus on what really matters to you.
When it comes to personal finance, everyone should know a few basics. Here are a few of the most important things to keep in mind:
Create a budget.
If you want to get your finances in order, you need to create a budget and stick to it. Figure out how much money you have coming in each month and your fixed expenses (like rent or car payments). Then, figure out what you can afford to spend on variable costs (like groceries or entertainment). If you stick to your budget, you'll be less likely to fall into debt. Yes, I know this seems basic, and it's been said and written thousands of times, but that's because it's the truth. A budget is the foundational building block when it comes to finance. From individuals and families to Fortune 100 companies, the ability to account for every dollar is absolutely critical.
One of the best ways to get your finances in order is to start saving money. You should aim to save at least 10% of your income. Once you have a budget in place, try to increase the percentage that you keep every month. Don't get me wrong, you cannot save your way to wealth, but you will need the disciplined habits of putting money aside and learning how to allocate your funds. Saving also buys you "time freedom." If you have a year's worth of expenses saved and gaining interest ( we'll come back to this), you can be secure in your choices of employment, knowing that you don't need someone's paycheck to pay your bills. That's a powerful feeling.
Start paying off your debt as soon as possible- even if it's just a little bit each month. Consider transferring the balance to a 0% APR credit card if you have credit card debt. That way, you won't have to pay any interest when trying to pay off your debt faster. Also, look at the Snowball and Avalanche method of paying your debts. These give you systematic ways of paying your debts to help reduce the amount of interest and time it takes you to pay them off.
Invest in yourself and in your future.
To get the most out of your money, invest some of it into yourself or into assets that will appreciate over time (like stocks). If you want to become financially stable, you need to learn how to invest. There are many ways to get into investing, and we'll cover them all in future posts. The key takeaway here is that you want to make sure that your money is making money.
Educate yourself on personal finance.
The more you know about managing your money well, the better off you'll be. If you don't want to spend hours each week trying to balance your checkbook or do research, there are plenty of resources out there that can help you manage your money- use them!
Stay focused on your goals.
If you want to get ahead:
- Keep yourself motivated.
- Write down what you're trying to accomplish and review it every day so that you stay focused on achieving those goals.
- If it's a big goal, break it up into smaller monthly or weekly milestones so that you're always working towards something.
This is one of the most important aspects but rarely talked about. Making any kind of change is always 100% mental. Your approach and dedication to building new habits will help you keep building confidence with each goal you meet. Those habits will also help you during the bad times when things aren't going as planned. Remember, it's a journey, and it will take time, but you can and will make the changes you desire.
Track your progress toward your goals.
Make sure that you keep track of how far you are towards achieving those milestones. You can do this with a journal or an app like Mint to track expenses and income. Reward yourself when you meet a goal! Just don't go overboard.
The process of managing your personal finances can seem daunting, but it's important to understand the basics so that you're able to get on top of any potential problems before they happen. The steps I've outlined in this blog post should give you a great starting point for developing habits around saving money, reducing debt, and investing wisely. Remember- financial literacy is an ongoing process. This is just the first post in the Personal Finance 101 series; check back as we dig deeper into topics like investing and paying down debt. You'll never know everything about finance or be perfect when budgeting and spending because there are always new things coming out each year. That said, make sure you educate yourself as much as possible by reading articles like this one and remember you've got this!